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After a three-year investigation into the collapse of Sonoma Valley Bank, federal prosecutors announced fraud charges Thursday against two former bank executives, a Santa Rosa attorney and a Marin County developer who became one of the bank's largest borrowers before its implosion.

The bank's former CEO, Sean Cutting, 44, of Sonoma, and its chief loan officer, Brian Melland, 45, of Santa Rosa, were arrested Wednesday with developer Bijan Madjlessi, 58, of Mill Valley and attorney David Lonich, 59, of Santa Rosa.

They appeared in federal court in San Francisco, where prosecutors unsealed a 29-count indictment accusing them of conspiracy, bank and wire fraud, money laundering, making false statements to a bank, false bank entries and obstruction of justice.

A Look Back At Sonoma Valley Bank's Collapse

7/24/2011: A9:
PC: Glen Ellen branch of the Sonoma Valley Bank.

The Park Lane Villas on Sebastopol Road in Santa Rosa. The mixed-use facility was one of three projects funded by Sonoma Valley Bank and defaulted by Marin County developer Bijan Madjlessi. BETH SCHLANKER/ PD

The Park Lane Villas on Sebastopol Road in Santa Rosa. The mixed-use facility was one of three projects funded by Sonoma Valley Bank and defaulted by Marin County developer Bijan Madjlessi. BETH SCHLANKER/ PD

The Park Lane Villas on Sebastopol Road in Santa Rosa. The mixed-use facility was one of three projects funded by Sonoma Valley Bank and defaulted by Marin County developer Bijan Madjlessi. BETH SCHLANKER/ PD

Former Sonoma Valley Bank CEO Sean Cutting was among four people indicted on fraud charges related to the bank's 2010 collapse on Wednesday, April 9, 2014. PD FILE, 2009

Marin County developer Bijan Madjlessi was indicted on fraud charges connected to the collapse of Sonoma Valley Bank in 2010 on Wednesday, April 9, 2014. PD FILE

7/24/2011: A1: [Greenbriar Condo Conversion]
The Greenbriar Apartments in Petaluma. The complex was one of three projects funded by Sonoma Valley Bank and defaulted by Marin County developer Bijan Madjlessi

1/23/2011: A10: Petaluma Greenbriar Apartments, a failed condo conversion in Petaluma that was spearheaded by developer Bijan Madjlessi, is in various stages of foreclosure. Virtually no improvements were made to the complex during the time Madjlessi received tens of millions of dollars in loans for it, according to residents.
PC: One of the many units in the Greenbriar Apartments in Petaluma where two Marin County investors took out loans for millions of dollars from Sonoma Valley Bank and failed to complete the plan to upgrade and convert the property to condos. The property is now in default. (Please work with Nathan on the captions)

The Park Lane Villas on Sebastopol Ave. in Santa Rosa. The mixed-use facility was one of three projects funded by Sonoma Valley Bank and defaulted by Marin County developer Bijan Madjlessi

7/24/2011: A1:
PC: The former Sonoma Storage Emporium at 4201 Santa Rosa Ave. The building was one of three projects funded by Sonoma Valley Bank and defaulted by Marin County developer Bijan Madjlessi

12/26/2010: E6:
PC: Sonoma Valley Bank is now Westamerica Bank one branch of which is in the Fiesta Plaza shopping center in Boyes Hot Springs.

Sonoma Valley Bank is now Westamerica Bank one branch of which is in the Fiesta Plaza shopping center in Boyes Hot Springs.

Jamey Rice walks into Westamerica Bank which used to be Sonoma Valley Bank. "I am honestly thinking of switching banks," Rice said in response to the shortened hours. "Everyone liked Sonoma Valley Bank but now that it is Westamerica Bank, it isn't the same. It isn't as personal."

7/24/2011: A8:
1/23/2011: A1:
8/24/2010: C6:
PC: The Sonoma Valley Bank branch on Napa St. in Sonoma now has signs of the takeover by West America Bank.

If convicted of all charges, they face fines of more than $17 million and decades in prison. Each has been released on $250,000 bond and ordered to return to court April 18.

Investors in the failed bank and others impacted by the alleged scam were pleased to learn of the arrests. Madjlessi left a wake of financial ruin while treating himself to a lavish lifestyle that included a multimillion-dollar home, a yacht and personal jet, said Chad Empey, a Petaluma glass contractor who claims Madjlessi duped him into taking out loans for him.

"It's unfathomable what he did," said Empey. "A lot of people lost money, their retirements, their homes. He destroyed hundreds of people."

Sonoma Valley Bank investor Erland Stenberg, a retired Santa Rosa accountant who lost shares worth up to $700,000 when the institution folded, said the four men should receive the maximum punishment.

"I hope they lock them up and throw away the key," Stenberg said. "I'm very happy to hear they were indicted. I wonder if we'll get our money back."

Cutting did not return calls Thursday and Melland referred questions to his attorney. Neither Madjlessi nor Lonich could be reached for comment.

The indictment focused on a relatively small portion of the loans made by Sonoma Valley Bank to Madjlessi and his associates. The borrowers, who received nearly $55 million from the bank, defaulted on at least $45 million in loans, according to a 2011 lawsuit filed by investors.

The bank folded in August 2010, wiping out the value of investors' stock and costing taxpayers millions.

Prosecutors allege Madjlessi and his attorney, Lonich, worked with Cutting and Melland to defraud the bank by obtaining loans for the Park Lane Villas mixed-use development in west Santa Rosa.

The indictment alleges Madjlessi and Lonich created a front company, 101 Houseco LLC, to borrow $9.5 million from Sonoma Valley Bank in 2009 shortly after the bank obtained $8.7 million in federal bailout funds. Prosecutors said Cutting and Melland took steps to authorize the loan to 101 Houseco, even though they allegedly knew that Madjlessi and Lonich were the true borrowers.

Madjlessi used the money to regain control of the Park Lane Villas project, according to the indictment. He spent $4 million to buy back rights to a $30 million construction loan that he had obtained from IndyMac Bank to build Park Lane Villas and then defaulted on. Madjlessi had been prohibited from bidding on the loan, which was held by Freddie Mac after IndyMac collapsed in 2008.

The indictment alleges that Cutting helped Madjlessi and Lonich gain control of additional units at Park Lane Villas by issuing letters on Sonoma Valley Bank letterhead falsely stating that potential buyers had sufficient funds to purchase the units.

All were arrested early Wednesday morning in a coordinated effort by multiple agencies. Madjlessi was escorted from his Sky Road house in handcuffs, according to a source familiar with the case.

"They had the office blinds closed and the doors locked," she said. "There were probably 10 to 20 officers in there with their guns and jackets on. They were pulling out drawers and file cabinets and packing up."

The indictment is the latest development in the story of the shuttered bank, which was founded in 1988 and sank deep roots in the Sonoma Valley by encouraging its customers to become shareholders.

In October, the Federal Deposit Insurance Corp. filed a civil suit against Cutting, Melland and former bank CEO Mel Switzer, seeking to collect more than $12 million for losses.

The suit contended the bank approved loans to entities affiliated with Madjlessi in disregard for prudent lending practices. It alleged that bank officers knew or should have known they were lending to one borrower in excess of banking or legal limits, that the transactions were based on stale or inadequate appraisals and that the borrowers were debt-laden and had little or no equity invested.

Switzer has not been charged with a crime. However, the FDIC accused all three executives of gross negligence and breach of fiduciary duty for their roles in the institution's failure.

Switzer did not return a call Thursday.

The bank came under heavy scrutiny in 2009 and 2010 by federal regulators, who ordered the bank to restate its losses and raise additional capital. When the bank failed to raise about $20 million needed to meet federal guidelines, regulators seized the institution and sold it to Westamerica Bank.

At the time, Sonoma Valley Bank's top leaders, including Cutting and Switzer, issued a public statement blaming the sharp real estate downturn for their troubled loans. They said the bank had been profitable in its most recent quarter and would have returned to financial health.

Madjlessi faces criminal charges in Marin County in connection with two separate insurance claims he made after his Reno condo-conversion project was damaged in a 2008 arson fire. A trial is scheduled for October, a prosecutor said.

Ross real estate investor Steve Scarpa, who claims he lost $10 million in deals with Madjlessi, said he's been waiting for him to be held accountable for past six years. The man he called "Teflon Bijan" never thought he would be caught, Scarpa said.

After a three-year investigation into the collapse of Sonoma Valley Bank, federal prosecutors announced fraud charges Thursday against two former bank executives, a Santa Rosa attorney and a Marin County developer who became one of the bank's largest borrowers before its implosion.

The bank's former CEO, Sean Cutting, 44, of Sonoma, and its chief loan officer, Brian Melland, 45, of Santa Rosa, were arrested Wednesday with developer Bijan Madjlessi, 58, of Mill Valley and attorney David Lonich, 59, of Santa Rosa.

They appeared in federal court in San Francisco, where prosecutors unsealed a 29-count indictment accusing them of conspiracy, bank and wire fraud, money laundering, making false statements to a bank, false bank entries and obstruction of justice.

If convicted of all charges, they face fines of more than $17 million and decades in prison. Each has been released on $250,000 bond and ordered to return to court April 18.

Investors in the failed bank and others impacted by the alleged scam were pleased to learn of the arrests. Madjlessi left a wake of financial ruin while treating himself to a lavish lifestyle that included a multimillion-dollar home, a yacht and personal jet, said Chad Empey, a Petaluma glass contractor who claims Madjlessi duped him into taking out loans for him.

"It's unfathomable what he did," said Empey. "A lot of people lost money, their retirements, their homes. He destroyed hundreds of people."

Sonoma Valley Bank investor Erland Stenberg, a retired Santa Rosa accountant who lost shares worth up to $700,000 when the institution folded, said the four men should receive the maximum punishment.

"I hope they lock them up and throw away the key," Stenberg said. "I'm very happy to hear they were indicted. I wonder if we'll get our money back."

Cutting did not return calls Thursday and Melland referred questions to his attorney. Neither Madjlessi nor Lonich could be reached for comment.

The indictment focused on a relatively small portion of the loans made by Sonoma Valley Bank to Madjlessi and his associates. The borrowers, who received nearly $55 million from the bank, defaulted on at least $45 million in loans, according to a 2011 lawsuit filed by investors.

The bank folded in August 2010, wiping out the value of investors' stock and costing taxpayers millions.

Prosecutors allege Madjlessi and his attorney, Lonich, worked with Cutting and Melland to defraud the bank by obtaining loans for the Park Lane Villas mixed-use development in west Santa Rosa.

The indictment alleges Madjlessi and Lonich created a front company, 101 Houseco LLC, to borrow $9.5 million from Sonoma Valley Bank in 2009 shortly after the bank obtained $8.7 million in federal bailout funds. Prosecutors said Cutting and Melland took steps to authorize the loan to 101 Houseco, even though they allegedly knew that Madjlessi and Lonich were the true borrowers.

Madjlessi used the money to regain control of the Park Lane Villas project, according to the indictment. He spent $4 million to buy back rights to a $30 million construction loan that he had obtained from IndyMac Bank to build Park Lane Villas and then defaulted on. Madjlessi had been prohibited from bidding on the loan, which was held by Freddie Mac after IndyMac collapsed in 2008.

The indictment alleges that Cutting helped Madjlessi and Lonich gain control of additional units at Park Lane Villas by issuing letters on Sonoma Valley Bank letterhead falsely stating that potential buyers had sufficient funds to purchase the units.

All were arrested early Wednesday morning in a coordinated effort by multiple agencies. Madjlessi was escorted from his Sky Road house in handcuffs, according to a source familiar with the case.

"They had the office blinds closed and the doors locked," she said. "There were probably 10 to 20 officers in there with their guns and jackets on. They were pulling out drawers and file cabinets and packing up."

The indictment is the latest development in the story of the shuttered bank, which was founded in 1988 and sank deep roots in the Sonoma Valley by encouraging its customers to become shareholders.

In October, the Federal Deposit Insurance Corp. filed a civil suit against Cutting, Melland and former bank CEO Mel Switzer, seeking to collect more than $12 million for losses.

The suit contended the bank approved loans to entities affiliated with Madjlessi in disregard for prudent lending practices. It alleged that bank officers knew or should have known they were lending to one borrower in excess of banking or legal limits, that the transactions were based on stale or inadequate appraisals and that the borrowers were debt-laden and had little or no equity invested.

Switzer has not been charged with a crime. However, the FDIC accused all three executives of gross negligence and breach of fiduciary duty for their roles in the institution's failure.

Switzer did not return a call Thursday.

The bank came under heavy scrutiny in 2009 and 2010 by federal regulators, who ordered the bank to restate its losses and raise additional capital. When the bank failed to raise about $20 million needed to meet federal guidelines, regulators seized the institution and sold it to Westamerica Bank.

At the time, Sonoma Valley Bank's top leaders, including Cutting and Switzer, issued a public statement blaming the sharp real estate downturn for their troubled loans. They said the bank had been profitable in its most recent quarter and would have returned to financial health.

Madjlessi faces criminal charges in Marin County in connection with two separate insurance claims he made after his Reno condo-conversion project was damaged in a 2008 arson fire. A trial is scheduled for October, a prosecutor said.

Ross real estate investor Steve Scarpa, who claims he lost $10 million in deals with Madjlessi, said he's been waiting for him to be held accountable for past six years. The man he called "Teflon Bijan" never thought he would be caught, Scarpa said.